CFA CFA Level 1 CFA Level 1 Question of the Week – Financial Reporting and Analysis

CFA Level 1 Question of the Week – Financial Reporting and Analysis

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    • Matt_AnalystPrep
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      Which
      of the following statements is/are accurate regarding the common-size analysis
      of financial statements?

      I. A vertical
      common-size balance sheet presents all the line items as a percentage of total
      assets. 

      II. A vertical
      common-size income statement presents all the line items as a percentage of net
      income.

      III. A horizontal
      common-size income statement calculates all line items as a percentage of the
      base year’s income statement.

      • A. II only
      • B. II & III
      • C. I & III
    • Matt_AnalystPrep
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      The correct answer is C.

      Statement II is incorrect. A vertical common-size income statement presents all the line items as a percentage of REVENUE.

      Statements I is correct. A vertical common-size balance sheet presents all the line items as a percentage of total assets. 

      Statement III is correct. A horizontal common-size income statement calculates all line items as a percentage of the base year’s income statement.

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